Teardowns are the bread and butter of the consumer electronics and automotive industries. (An example of a teardown of the Nintendo 3DS [IEEE Spectrum, June 2011], is appended at the bottom of this post.) I recall product teams at GM tearing apart the latest cars from the competition. While it bothered me that a perfectly fine <name your favorite manufacturer’s> car was being destroyed, it was an invaluable exercise to understand how they designed every part of the car, how they built the car, etc. Product strategy, manufacturing technology, supply chain and distribution strategy, and cost structures were reverse engineered, documented and holistically synthesized for competitive reasons — all from publicly available materials/information.

My team has adapted this approach over the last few years to understand our competition in the software market. While the exact process might be different, it is conceptually very similar.

My observations from these exercises:

  1. The teardown brings sharp focus on the critical competitive dimensions — from sales to marketing and development.
  2. It energizes and aligns the team. Everyone, from the person(s) who created the teardown report to the audience leaves with a phenomenal sense of what each one can do individually and collectively to gain an (unfair) advantage
  3. A good framework is absolutely critical to driving good insight
    1. Helps identify the chinks in the competitor’s market and product strategy. By extension, highlights what we need to push in the market
    2. Helps identify what the competitor is attempting to do next
  4. Understanding the income statement and balance sheet along side the product gives you a very good and complete picture of what is going on
    1. Why is the marketing spend as a % revenue so high?
    2. Is the sudden increase in R&D expenses a sign of a push into adjacent markets? If so, which ones? Should i be worried?
    3. Do they have a stash of cash? What will they do with it? M&A? Stock buyback? Grow?

Rahul Asthana has a powerful example of a teardown. I am sure that you have thought of or use other ways of getting a good handle on the competition. Do share your work, either in your blog or in a comment below, for everyone to benefit from!

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